|Five fixes to secure future retirements
IPERS is financially strong now, and benefits already earned by current workers are safe. However, long-term projections showed something had to change so that IPERS can keep promises to the workers who will retire 30 years from now. Unprecedented investment losses during the recession on top of years of lower-than-needed contributions called for prompt action.
IPERS’ Benefits Advisory Committee of employee and employer delegates decided the fairest approach was to increase contributions while trimming benefits employees have not yet earned. The legislature and governor agreed.
These changes affect only regular IPERS members. However, the changes do not affect benefits they have already earned. The changes do not affect sheriffs, deputies, protection occupation employees, or retirees either.
EFFECTIVE JULY 1, 2011
1. The total contribution rate will be 13.45 percent.
- Employees will contribute 5.38 percent of their wages, which is 40 percent of the total contribution.
- Employers will contribute 8.07 percent of employees’ wages, which is 60 percent of the total contribution.
Before the law change, employees would have paid 4.70 percent on 7/1/11. The increase to 5.38 percent means an employee with weekly wages of $1,000 will have $6.80 more deducted each week.
EFFECTIVE JULY 1, 2012
2. IPERS can adjust the total contribution rate up or down each year, by no more than 1.0 percentage point.
3. Members become vested after seven years of service (currently four years of service), or upon reaching age 65 while in IPERS-covered employment (currently age 55), whichever comes first. Vesting is when a member establishes rights to IPERS benefits.
4. The wages used to calculate benefit amounts will be the average over the five years the employee earned the most (currently the average is based on three years). IPERS will continue to use a control year outside of the “high five” years to test for wage spiking, which inflates benefits.
5. The amount lifetime monthly benefits are reduced for early retirement increases from 3 percent to 6 percent times the number of years the member receives benefits before age 65. The 6 percent reduction for early retirement will affect only people who retire before reaching normal retirement age.